2020: A zooming market, new tax regime and regulatory overdrive on insurance and mutual funds

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© Sounak Mukherjee 2020: A zooming market, new tax regime and regulatory overdrive on insurance and mutual funds

The year 2020 unleashed the spectre of recession across continents, including India. The central government responded with many measures, including by postponing tax and investment-related deadlines, and easing guidelines.

Tax regime changes and RBI’s rescue acts

Budget 2020 introduced the new, alternative tax regime that promised lower tax rates, but did away with many exemptions and deductions.

Then came the YES Bank rescue act, thanks to the steps taken by the Reserve Bank of India (RBI) in March. A clutch of lenders, led by State Bank of India (SBI) bought stakes in the troubled Yes Bank, calming the nerves of depositors who feared a repeat of the PMC Bank crisis of September 2019.

Then, COVID-19 struck. The government and the Reserve Bank of India (RBI) announced measures to make it easy for people to borrow money in case personal incomes were hurt. The central bank’s 115 basis points cumulative policy rate cut to spur demand for credit has led to cheaper home loan rates that are at a record 15-year low.

Savers hurt, but some relief for borrowers

But the rate cuts hurt savings account and fixed deposit holders. Also, small savers had to suffer a 70-140 bps rate reduction across small saving schemes.

The RBI also announced a six-month EMI moratorium to provide relief to borrowers hit by COVID-induced job and business losses. In October, the central government decided to waive the accumulated interest-on-interest even for borrowers who did not opt for the moratorium, but continued paying their EMIs.

More insurance buyers and release of COVID-19 policies

Insurance was the dominant theme, as the pandemic reminded us about the importance of having adequate health insurance cover at all times. The Insurance Regulatory and Development Authority of India (IRDAI) stepped in to get insurers to offer COVID-specific standard Corona Kavach and Corona Rakshak policies to comfort panic-stricken customers. These were in addition to the Aarogya Sanjeevani standard health cover rolled out in April and Saral Jeevan Bima standard term insurance policy announced in November.

Even as COVID-19 fears pushed Indians to get adequate protection, disputes between hospitals and non-life insurers on COVID-19 hospitalisation costs led to a trust deficit. As many had to shell out substantial amounts from their pockets as insurers refused to pay for certain expenses, particularly for PPE kits in the initial days, their faith in insurance was shaken.

Zooming markets and a regulator on a reformation spree

Our investments were in disarray soon after the global pandemic started. In March, the S&P BSE Sensex fell to 25,639 points, but later recovered sharply and went past the 45,000 points mark on December 4.

The capital market regulator, Securities and Exchange Board of India (SEBI) continued its reforms: a revised risk-o-meter to help investors identify risky funds; mandated the complete separation of financial advice and product distribution; and pushed multi-cap funds to be meaningfully diversified across large, mid and small-cap stocks.

On the pension front, the central government allowed withdrawal of up to 75 percent  or three months’ wages, whichever was lower, from employees’ provident fund account to meet COVID-19 crisis-induced liquidity and emergency needs. This facility was available from April to June. The other retirement vehicle – National Pension System – is set to see a host of changes in the days to come.

While COVID-19 has hurt many of our plans, as also those of governments across the world, some areas have seen a positive impact too. For instance, physical distancing requirements expedited a shift towards digital across financial sectors, with many transactions, including KYC and submission of insurance claim documents moving completely online.

On that optimistic note, let’s bid the disastrous 2020 adieu, with the hope that 2021 will leave us a lot more cheerful – with effective vaccines and therapeutics to fight COVID-19.

Happy New Year!